by Beth Belton, Adam Shell and John Waggoner, USA TODAY, USATODAY

by Beth Belton, Adam Shell and John Waggoner, USA TODAY, USATODAY

The price of gold plunged 5% Friday to its lowest level in three years as economists grew increasingly worried about the economy's forward momentum heading into spring.

The price of gold futures for June delivery finished the week at $1,487, down $78 an ounce. It's the lowest close of the precious metal since it peaked at $1,889 in August 2011.

"There is no apparent reason for the sell-off, apart from saying that the move is fueled by technical, computer-driven trading," says Jeffrey Nichols, senior economic adviser to Rosland Capital. "It's as if you shouted 'fire!' in a crowded movie theater and everyone tried to get out through the same exit."

Nichols says that some hedge funds are getting out of gold and moving to stocks. "They're very performance-oriented funds, and gold is not performing for them," he says. "We've seen a continuing shift from gold to equities."

Precious metal investors appear to losing their confidence in gold as a safe-haven investment from the risks of inflation or a major stock market meltdown. There is also growing concern that as the beleaguered banking sector in Cyprus worsens, citizens and investors there and in other parts of the debt-laden eurozone will ratchet up gold sales to raise cash.

However, a big gold sale by the government of Cyprus is unlikely, Nichols says: It's against European Union rules to sell gold to cover deficits, and Cyprus doesn't have enough gold to produce such a large movement in the market.

The yellow metal's slide into bear market territory marks its 14th bear market since 1975, according to data compiled by Bespoke Investment Group. Gold has seen its per-ounce price plunge more than $400, or 21%, since its peak of $1,888.70 some 20 months ago.

Stock and bond investors were mostly shrugging off the big action in gold prices. Benchmark indexes finished flat to slightly lower after four straight days of gains, including two days of higher record closes the past two days for the Dow Jones industrial average and the broader Standard & Poor's 500 index.

So how far can gold fall? Past bear markets offer some insights. The average gold decline since 1975 is 31.6%, Bespoke says. And gold typically falls an additional 14% after its first close in bear market territory, historical data show. If this bear market carves out a similar pattern, gold would bottom out at roughly $1,281 an ounce.

"While markets rarely follow the average pattern to a 'T,' it does provide a baseline guide of what to expect," says Paul Hickey, Bespoke's co-founder.

The worst two gold plunges, according to Bespoke, occurred in 1980, with back-to-back drops of 45% and 46% in a volatile eight-month span. Gold sold off sharply that year after then-Federal Reserve chairman Paul Volcker "broke the back of inflation," by his decision to sharply hike short-term interest rates from 11.2% in 1979 to an ultimate peak of 20% in mid-1981. The tighter monetary policy brought inflation down from a peak of more than 13% in 1981 to roughly 3% in 1983. Gold, of course, is viewed as a hedge against inflation.

Frank Holmes, CEO of U.S. Global Investors, says that gold is likely to rebound, in large part because U.S. interest rates, adjusted for inflation, are negative â?? traditionally bullish for gold. Nichols thinks the weak economy will prompt the Federal Reserve to continue its program of keeping interest rates low by purchasing long-term bonds with newly minted money â?? another bullish event for gold.

Investors should keep about 5% of their portfolio in gold as insurance against inflation, Holmes says, even though inflation has been modest. "You don't cancel your car insurance because you haven't had an accident in five years," he says.

The intensity of the gold sell-off caught analysts off-guard. There were no huge disappointing economic reports out Friday. A report on inflation at the wholesale level showed producer prices down 0.6% in March after a 0.7% spike in February. Excluding the impact of volatile changes in energy and food prices, wholesale prices were up 0.2% in March, the government said. And year over year, wholesale inflation has risen just 1.1%, the smallest annual increase in more than a year.

Still, monthly economic reports tend to bounce around from month to month and there's no clear-cut evidence yet that the economy is going to stall in the spring despite renewed worries after the government reported one week ago that just 88,000 nonfarm jobs were added in March while the unemployment rate ticked to 7.6% from 7.7%, mostly because more people gave up and stopped looking for jobs.